Analysts Say a 2% Increase in Czech Corporate Tax Rate Won’t Drive Businesses To Relocate

According to analysts interviewed by the Czech News Agency, a 2% increase in corporate income tax is not a significant enough complication to motivate businesses to relocate their headquarters to other countries where rates are often much higher. The government proposes increasing the corporate tax rate from 19% to 21% in the consolidation package.

Jana Skálová from the TPA Group stated that “a 2% increase in the tax rate for legal entities is so small that many legal entities will not address it or consider relocation to another country where rates are often much higher.” Analyst XTB Jiří Tyleček said the increase in corporate tax could be expected, and the planned scope was not extreme. He also noted that it would hurt the competitiveness of the Czech economy, and owners of companies would have less money for investment.

On the other hand, the tax will remain close to the average of the European Union countries. Tyleček also said that from the available information, it could not be said that companies would be affected more than other taxpayers. He noted that public finances are in such a state that they cannot be solved solely by limiting expenses. Místopředseda představenstva investiční společnosti Tesla Tomáš Jícha said that the increase in the tax rate for legal entities is not so significant that companies need to address it with complicated tax optimization methods.

According to analyst Radim Dohnal, the tax rate increase is slight, and companies should not feel it. However, a more robust growth rate could lead to the outflow of engineering companies with foreign owners to Poland, Romania, or Bulgaria. Tax expert PwC David Borkovec does not expect companies to relocate to other countries. According to him, adjusting the tax rate will not disadvantage the Czech Republic in the eyes of foreign investors, given the comparison of the tax rate with neighboring countries.

Borkovec notes the change in personal income tax, where a higher rate will apply from a lower income threshold than before. “This change is in line with the often-expressed reluctance of the government to intervene significantly in the taxation of individuals. Compared to other changes to the tax system, this adjustment is cosmetic,” he said. The government’s consolidation package also includes a change in the excise tax on tobacco products, the introduction of an environmental tax, and a tax on digital services. The total revenue from the tax increase should be about 20 billion crowns per year.